MONEY!...,
- Okay, now that I got everyone's attention. *grins* Howdy folks, today we're going to go down yet another road that's often regarded as 'taboo'...the free market. Look, I'm no economist...but I don't think it requires a degree from Harvard University to understand the basic principles regarding 'Supply and Demand'. That's rather intuitive in it's own right, but just in case someone's not clear - let's take a look at that fundamental block that drives our economy:
SUPPLY AND DEMAND
- Wow, I looked this up on wikipedia.org and got a whole page of junk...no, seriously, it sounded like legalesse. Okay, let me go ahead and give you the layman version (because even I didn't understand that tripe). Look, it's real simple...in order to attain any sustainable business model, you need two things:
- Supply: a commodity and/or service,
- Demand: the need thereof.
- Technically, the essence of any business is founded upon those two empirical truths. You simply cannot supply a product that no one has a demand for, just like the futility of shopping for a good and/or service that doesn't exist (...on that account, you'll have to be an entrepreneur and do it yourself). This economic model establishes the method unto which pricing for supplies/services can be achieved. A commodity/service that is low in cost to establish (manufacturing/shipping - an intrinsic part of supply), but in high demand leaves a great deal of flexibility to regulate price (...you could set the price as low, or as high as you want since the demand for the product/service will, in theory, always be there).
- Natural grown foods is one example of an easy to produce commodity that is in high demand - let's face it folks, everyone needs to eat...the demand will always be there. It is because of this understanding that prices regarding food commodities have maintained a respectable level...afterall, despite the effort it takes to produce a head of lettuce, the overall cost is fairly modest for the quantity rendered. With that, there's no real need to throw an outrageous price out on the market since all you need is to cover manufacturing costs. The price of growing, packing and shipping is added to the base price you're expecting to see paid per unit sold to the retailer (like Walmart...unless you drive to a farmers market and sell it yourself) who purchases your goods for resale (at a MUCH higher price...or if you're selling it yourself - whatever price you feel comfortable gouging your buyers regarding thusly). Since you want to target the largest demographic area a possible regarding your product/service (or attract as many clients as possible), selling at a low price intrinsically attains the largest amount of buyers. More buyers = more profit. Often called the 'farmers market', this is (beyond a shadow of a doubt) the most stable market...the demand will die out when people stop eating (i.e. - never). About the only thing that affects the 'farmer's market', of course, is nature itself - no rain = no crops = bad year. An irrigation system for innumerous hectacres is EXPENSIVE - most farmers who have invested in these irrigation systems probably took out a bank loan (much to the banker's glee and the farmer's woe). Pesticides are also not cheap resulting an even greater cost/unit disparity...one bad year can cripple a farmer (and leave them in debt to banks for a long...long...time).
- Of course, not all seek to support that type of business ethic and desire to make the most profit from each unit sold (regardless if it's easily made) since it's the demand that's driving the market. With that includes all the fun loving electronic gadgets you see flooding the telly with commercials offering the next step in technological wizardry. Though complex in producing, if the overall cost of manufacturing is low and the demand is high...then you can set an exorbitant price and generally will attain an estimable payout. Other examples of this particular business model (often called 'luxuries') are pretty much anything that does absolutely nothing to sustain life like computers and cell phones. Maintaining a profit regarding these commodities is not difficult UNLESS the demand dies out...which is a risk regarding all business models, but affects this one the most significantly. Once a demand for these particular products/services dies out (especially if a better model/service is provided) then you'll have to do better and upgrade your product and/or service or lose your payroll to the open market. Always stay aware of your competition around you and never disregarding improving your product/service - your 'friendly' open market is absolutely striving to upstage you. This is regarded as a 'seller's market' as the cost/unit is low, but the price is inflated rediculously because the buyer simply doesn't care how much it costs - they just want one. This business model is exceedingly flexible since when demand drops off, the price can be adjusted accordingly to maintain marketable interest while researching/producing the latest upgrade (or retire...really, you made a killing - retire in style).
- Interesting, but what about hard to produce products/services...where do they sit regarding this? Well, products that are hard (and expensive) to produce will intrinsically sell for a much higher price. However, remember...all that's REALLY needed is to cover the base cost of production and shipping and the rest of the cost per unit is pure profit. Complex, hard to produce and costly products suffer the worst in an open market (regardless of demand) because the danger of producing too many will almost always force the manufacturer of said product/service to take a loss should the demand die out...a BIG loss. Examples of high cost, low demand products are...hate to say it, the car industry. Glutting the market with expensive to produce products does NOT guarantee profit...as a matter of fact, producing an excessive amount with the hopes that the market for said product will meet the supply is an excercise in sheer folly. The massive amount of vehicles produced on a yearly basis by the car industries is moronic - there simply is not enough people turning in thier older (but still functioning) cars for a new one. The failure of the car industry (due to exorbitant prices/unit) caused a majority of the car industries to crumble underneath thier own weight of projected sales which were never met (plus the fact that they never adjusted the price to meet the demands...it really doesn't cost over $10,000 to make a car these days...). This is what happens when someone pretends to have control over a 'buyer's market' (which is essentially what the car industry is, regardless of the manufacturer's ego...it's the buyer who sets the price). Buyers won't buy if they don't like the price and producing an excess to a market that's not buying = bankruptcy. Since most modern cars are also built to breakdown...this is also an example of an educated market vs. mass-produced junk (a.k.a. - 'quantity vs. quality').
- You can even apply this business model to services such as utilities (gas and electric), arts and entertainment (movies and theater). Even illicit goods and trades (escourt services, drugs and firearms) are influenced regarding the basis of supply and demand (the 'black market' merely slays the open market due to the seller having an 'unlimited supply' at little to no cost to 'manufacture' so selling is almost always pure profit regarding stolen goods). These industries (utility, entertainment, etc) are also not required for survival, but is entirely a sellers market which allows the seller to set the price at erroneously high prices...people will pay because of the exceedingly high demand. People are desperate for a distraction in thier lives just as much as they want utilities provided for them (instead of learning how to subsist in the wilds) which is why these industries are doing so well (...and crime, obviously, pays). Knowing what market you seek to become involved in goes a long way in determining how well you will do (...no, not the stock market...insider trading ruined that 'industry' for those outside the loop - the stock exchange now is an excercise based on masochism. Ah well, all the 'stock market' was is 'legalized gambling' anyways...no loss).
- So what does all this mean and why is the economy doing so poorly? Glad you asked...you see, the most IMPORTANT thing to any standing market is the buyer. ANY market needs buyers...you simply cannot have a product or service if there's no one demanding such services (please see the tanking of the American car industry above for example...or the housing industry). Buyers, quite obviously, need money...so the REAL question is why don't the buyers have money? Clearly there's still a demand out there because no one's stopped buying FOOD...but everything else has taken a hit, why? Well, conserving expenditures has a dramatic effect on the open market during a recession...as a matter of fact, in not stimulating the economy by recirculating monies back INTO the open market turns a reccession INTO a depression as individuals, striving to hold onto their wealth, refuse to stimulate the economy causing the market to slow to an almost paralyzing crawl. However, there's another factor playing into this that isn't addressed...you see, there's a lot of people looking for jobs - there used to be jobs, where did they go?
- Remember that one person you called regarding your delayed payment on your credit card because you lost your job as a 'customer service representative' for that very same credit card company?...were you wondering why they were hard to understand? Yep, there's your answer...your job just got
OUTSOURCED to another country so that your FORMER employer could get more for his invested dollar for the services YOU were already providing. Nice, eh?...but wait, there's more...major car industries have also relocatted out of the United States to set up manufacturing plants in other countries just so they could produce products at a cheaper rate and sell it back to America at the regular price! Neato, huh? Even farming and general labor jobs are unavailable due to contractors (and farmers) seeking to save a buck by employing immigrants (instead of able-bodied Americans) because immigrants (mostly illegal immigrants) work for a WHOLE LOT LESS then Americans (plus, you don't have need to pay for health care, worry about getting sued in case of an injury, work insane hours and can terminate with no worry of redress! As a matter of fact, you can threaten with deportation and they'll leap through flaming hoops just to please you). Wow! All this cheap labor!...it's a win-win situation, right? Wrong, you moron...
- You see, this is what happens when you hire business execs with a college degree and absolutely no experience (...or intelligence in general, for that matter) regarding the open market. Almost every single major business industry that has TANKED has been guilty of this undeniable mistake...regardless of whether or not the product/service is in demand - if your clientelle cannot afford to BUY it (because they're unemployed) then YOUR business is going to crash...hard. Paranoid conservation coupled together with a record high unemployment rate (due to outsourcing of U.S. jobs) and the hiring of cheap migrant labor has painted the American citizenry into a corner. Buying American products is almost as impossible as finding gainful employment because everything is now made somewhere else and instead of working to purchase YOUR commodities and services...America is unemployed. Banks reluctant to grant loans delivers an even further blow to the economy by preventing new businesses to start...conservation during a recession, outsourcing jobs during a reccession and employing migrants who send the money they make to foreign countries (instead of back into the market)...KILLS THE FREAKING ECONOMY! Is any of this getting through, business execs?
- YOU'RE DESIRE TO MAXIMIZE PROFITS JUST KILLED THE AMERICAN DREAM!
- Really, you don't need a degree to comprehend economics...
- ...just a freakin' brain - demand is superfluous without the means to acquire the supply, putting an American on the unemployment line is the best way to destroy the free market system. Get wise, business execs...start bringing the jobs back home (...or start sponsoring support for new jobs in America - might as well use all that money you 'saved', genius).
The American Deist,
M.D. Little.